Key Takeaways:
Fujikura Ltd. lost about $40 billion in market value last week after its medium-term profit forecast fell 30% below analyst estimates.
"Fujikura hasn't been able to sufficiently expand capacity, creating a gap between market expectations and reality," Norikazu Shimizu, an analyst at Iwai Cosmo Securities, said.
The 141-year-old optical fiber cable maker on May 19 forecast operating income of ¥315 billion ($2 billion) for the fiscal year starting April 2028, well below the average analyst estimate of ¥455 billion. President Naoki Okada said production capacity will remain insufficient even after a new plant in Chiba Prefecture comes online. The stock had surged more than 1,500% in the 24 months through mid-May before the selloff.
The rout has reverberated beyond Fujikura, with peers Furukawa Electric Co. and Sumitomo Electric Industries Ltd. underperforming Japan's Nikkei benchmark since May 13. The episode exposes how quickly the tide can turn for AI infrastructure stocks as investors reassess whether manufacturers can deliver on lofty expectations.
The selloff was preceded by warning signs. Fujikura's relative strength index had climbed close to 80 before the earnings release, indicating the stock was overbought, according to Bloomberg-compiled data. Even after the rout, the shares trade at more than 40 times forward earnings, more than double the Topix index's roughly 18 times.
Material shortages are compounding the company's challenges. Fujikura has flagged concerns over supplies of hydrogen and helium, with the latter exacerbated by the Iran conflict. Longer term, rapid advances in transceiver technology are expected to reduce the amount of cabling needed inside future data centers, though analysts say that risk is likely several years away from materially hurting demand.
"Should the market wake up and realize that data center builds are being either delayed at their start or their completion given bottlenecks for power, cable guys are the first to get totally derated," Amir Anvarzadeh, Japan equity strategist at Asymmetric Advisors, said.
Demand fundamentals remain supportive. CRU Group forecasts global demand for data center cables will grow 22.4% between 2024 and 2030, driven largely by North America. Fujikura also retains pricing power with hyperscaler customers such as Apple Inc., which accounts for about 4% of its revenue, according to Bloomberg data.
"Investors are looking to reduce exposure to the sky-high valuations of AI data center and bottleneck plays," said William Nestuk, an analyst at Pelham Smithers Associates.
The decline puts Fujikura's stock at its lowest since before the AI rally began in earnest. Investors will watch the company's next quarterly update for signs of capacity expansion progress and any changes to its demand outlook.
This article is for informational purposes only and does not constitute investment advice.
